Pegasus Oil & Gas reports fourth quarter drilling results, exploration success and operational focus for the first quarter of 2008



    /NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN
    THE UNITED STATES./

    (Stock Symbol "POG.A & POG.B" - TSX Venture Exchange)

    CALGARY, Jan. 17 /CNW/ - Pegasus Oil & Gas Inc. ("Pegasus" or the
"Company") is pleased to announce exploration success on its strategic farm-in
at Strathmore and year end exit production based on field estimates of
approximately 750-800 boe/d (84% natural gas).

    OPERATIONAL AND PRODUCTION UPDATE

    The Company's main focus in the fourth quarter centered around the large
193,000 acre farm-in on freehold lands at Strathmore, adjacent to our
Crossfield project. Two of seven earning wells were drilled on these lands
testing both the down-dip and up-dip delineation of the extensive Pekisko
trend in this area.
    The first exploratory Pekisko well was drilled approximately 70 meters
down-dip of the existing Pekisko production in the area. The horizontal well
encountered mixed results with the well flowing both gas and water at
uneconomic rates. The well log response at the horizontal toe section of the
wellbore exhibits increasing porosity and resistivity conceivably suggesting a
transition zone from water to gas bearing reservoir. This interval will be
isolated and tested in the first quarter of 2008 to determine if the well is
capable of commercial gas rates.
    A second exploratory Pekisko well drilled 7 kilometres east (100 meters
up-dip) of the first well encountered 7 meters of porous dolomite. This
vertical well flow tested at gross gas rates of approximately 1 mmscf/d
(60% WI). With these positive test results, the well will be re-entered and
drilled horizontally to access additional porous reservoir rock ultimately
increasing the well's deliverability and reserve capture. Horizontal drilling
could potentially yield a 2-3 fold increase in well deliverability. The
horizontal drilling operation also facilitates the earning of up to 5 (3 net)
sections of land under the farm-in agreement.
    In January of 2008, a third vertical exploration well was drilled and
logged over the Pekisko formation on this play. Based on the petrophysical log
response, this well encountered the same porous Pekisko interval directly
correlating to the second well further extending the trend 2.5 kilometres
up-dip to the North and East. Based on the successful completion results of
the second well, this third well will be drilled horizontal immediately while
the drilling rig is on location. Completion and testing of the horizontal
section will immediately follow the drilling operation.
    Pegasus plans to drill a minimum of seven gross (4.2 net) Pekisko earning
wells on the farm-in lands prior to July 31, 2008. With certain conditions
met, each horizontal well earns up to 5 gross sections of land under the
farm-in agreement. Therefore, the Company has the opportunity to earn 35 gross
(21 net) sections of land assuming all wells are drilled horizontally into
this play.
    Pegasus recently spud (January 9, 2008) a second Slave Point exploratory
well at Chinchaga, Alberta. The first well drilled in the fourth quarter was
dry and abandoned. Pegasus operates the second well with a 50% WI. The
unrisked gross recoverable reserve exposure for this anomaly is approximately
1-2 million boe. The well is scheduled for a 20-25 day drilling operation and
preliminary open hole logging results are expected in early February 2008.
    The Company is very encouraged with the drilling success of its
previously announced Basal Quartz/Ellerslie play and the preliminary drill and
test results of the new emerging Pekisko play at Strathmore. The emergence of
the Pekisko play continues to evolve unlocking a new corridor of opportunity
further extending our core holdings to the east. With the ability to earn
multiple sections of land under the farm-in agreement at Strathmore, the
Company continues to focus on this core area amassing multiple drilling
opportunities on freehold lands, which boast very attractive royalty rates in
comparison to the more recently announced Crown royalty structure proposed by
the Alberta government.
    Pegasus' production exited year end at 750-800 boe/d with 200-250 boe/d
of tested behind pipe volumes, which is less than the earlier stated year end
guidance of 1,200 boe/d. Three factors contributed to the production
shortfall: the first Pekisko well drilled in the fourth quarter of 2007 did
not flow at commercial rates and was not tied-in; tested behind pipe volumes
from two wells (one 50 meter tie-in to a third party pipeline and one
commingling application awaiting EUB approval) will not come on-stream until
the first quarter 2008; and slightly higher corporate production declines than
originally estimated. As mentioned above, the horizontal toe section of the
first Pekisko well will be tested for commerciality in the first quarter of
2008. The tested behind pipe volumes from the two tested wells are expected to
be on-stream in the first quarter of 2008.
    Pegasus is budgeting capital expenditures of up to $19.5 million for
2008. This would result in the drilling of approximately 15 (10.7 net) wells.
Approximately 70-80% of these wells are planned for the freehold lands in the
Crossfield and Strathmore areas. Pegasus continues to dedicate 10-15% of its
yearly budget to high exposure exploration plays in the Western Canadian
Basin.
    The Company continues to amass and high grade a large drilling inventory
of development and exploration wells in its portfolio. After only 18 months of
operation and success in both the Strathmore and Crossfield areas, Pegasus
believes it is uniquely positioned for solid growth in 2008 and beyond.
    Additionally, Pegasus is very pleased to announce the promotion of James
Watchorn from Manager of Operations to Vice President of Operations effective
January 1, 2008.

    Pegasus' Class A and Class B shares trade on the TSX Venture Exchange
under the symbols "POG.A" and "POG.B" respectively. The Company currently has
27.64 million Class A and 1.01 million Class B Shares outstanding

    Forward-Looking Statements

    This press release contains forward-looking statements. More
particularly, this press release contains statements concerning the potential
reserves, production, capital expenditures, drilling activity and proposed
drilling locations.
    The forward-looking statements are based on certain key expectations and
assumptions made by Pegasus, including expectations and assumptions concerning
prevailing commodity prices and exchange rates, availability and cost of
labour and services, the timing of receipt of regulatory approvals, the
performance of existing wells, the success obtained in drilling new wells, the
performance of new wells and the sufficiency of budgeted capital expenditures
in carrying out the Company's planned activities. Although Pegasus believes
that the expectations and assumptions on which the forward-looking statements
are based are reasonable, undue reliance should not be placed on the
forward-looking statements because Pegasus can give no assurance that they
will prove to be correct. Since forward-looking statements address future
events and conditions, by their very nature they involve inherent risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors and risks. These include, but are not
limited to, the risks associated with the oil and gas industry in general
(e.g., operational risks in development, exploration and production; delays or
changes in plans with respect to exploration or development projects or
capital expenditures; the uncertainty of reserve estimates; the uncertainty of
estimates and projections relating to production, costs and expenses, and
health, safety and environmental risks), commodity price and exchange rate
fluctuations and uncertainties resulting from potential delays or changes in
plans with respect to exploration or development projects or capital
expenditures. These risks are set out in more detail in Pegasus' annual
information form for the year ended December 31, 2006, which can be accessed
at www.sedar.com.
    The forward-looking statements contained in this press release are made
as of the date hereof and Pegasus undertakes no obligation to update publicly
or revise any forward-looking statements or information, whether as a result
of new information, future events or otherwise, unless so required by
applicable securities laws.

    Meaning of Certain Terms

    When used in this press release, boe means a barrel of oil equivalent on
the basis of 1 boe to 6 thousand cubic feet of natural gas. Boepd means a
barrel of oil equivalent per day.
    Boe's may be misleading, particularly if used in isolation. A boe
conversion ratio of 1 boe for 6 thousand cubic feet of natural gas is based on
an energy equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead.

    The TSX Venture Exchange does not accept responsibility for the adequacy
    or accuracy of this release.

    %SEDAR: 00005637E




For further information:

For further information: Patrick Mills, President and Chief Executive
Officer, (403) 521-6307; Darcy Anderson, Chief Financial Officer, (403)
521-6302; Kevin Angus, Executive Vice President, (403) 521-6306; Corporate
website: www.pegasusoilgas.com

Organization Profile

Pegasus Oil & Gas Inc.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890